Plummeting Prices Help Clear Some Of Asia’s Floating LNG Cargoes

Plunging spot liquefied natural gas (LNG) prices in Asia and a flipping of the market curve have helped to clear some of the LNG cargoes off Asia’s coasts that have been sitting there since October, Reuters reports, citing shipping data from Refinitiv Eikon.

With weather warmer than usual in many parts of Asia, and China having procured most of its winter LNG requirements earlier this year after the rush and gas shortage last winter, LNG demand and prices have been dropping in recent weeks.

This has led to many LNG cargoes sitting as storage off the coasts of Singapore, Malaysia, and offshore South China.

But the LNG market structure has recently flipped to backwardation—the situation in which front-month prices are trading at a premium compared to prices further out in the future. When LNG traders started to float cargoes as storage, the market was still in the situation opposite to backwardation, contango—the structure in which front-month prices are lower than prices out in the future months—making storage for future sales profitable.

“When the traders started floating the cargoes, the market was in a contango of about $1, but it has now flipped into backwardation, so there is more urgency to sell the cargoes,” a Singapore-based trader told Reuters.

With the backwardation in the market and LNG spot prices at their lowest in months, at least nine floating LNG cargoes have recently headed to buyers in Japan, China, or South Korea, according to Refinitiv Eikon data.

At least five other LNG cargoes remain off the coasts of Singapore, with three of them sitting there since the second half of October.

Last week, Asian spot LNG prices dropped to their lowest in four months, with natural gas inventories in China, Japan, and South Korea high, Chinese industrial demand slowing, and warmer temperatures in north China.

According to Singapore traders who spoke to Reuters this week, Asian spot prices have further dropped since last week. Spot prices this week could be the lowest in almost seven months and 15 percent lower than the same period last year, according to Reuters data.